Etsy (ETSY -2.12%) has built an online marketplace with 66 million unique items from independent artisans who make handcrafted goods or sellers who specialize in vintage goods. As this platform is highly dependent on the quality of its 2.8 million sellers and their success, management realized it might need to lend a helping hand during these challenging times, and has stepped up in a number of ways.
Let's take a look at how the platform makes money, what the merchants get in return, and how management is helping its community of active sellers.
How does Etsy make money from sellers?
A majority (72%) of the company's revenue comes from its marketplace segment, which is made up of the fees that sellers pay to list items, sell items, and collect payments. The listing fee is a minimal $0.20 for each item, but 5% is collected from the seller when a buyer purchases an item. Etsy's payment services allow artisans to collect the money from the sale from credit cards, bank accounts, or other electronic means. Almost 90% of all sales use this service, and fees range from 3% to 4.5% of the value of the sale plus a flat fee based on the country.
Services revenue is derived from advertising and shipping services. Almost 17% of active storekeepers use advertising services including promoted listings and having their items be searchable from Google. Close to 23% of merchants use shipping label services, which include printable shipping labels, integration with the platform, and discounted shipping through USPS, FedEx, and other mail services.
Sellers pay around 16.4% of their sales to use the platform. This may seem like a lot, but let's look at the value of what the platform does for sellers.
How do sellers benefit by using Etsy's platform?
Sellers are attracted to Etsy because its well-known website is visited by over 46 million active buyers, defined as people who have made a purchase in the last 12 months. Eighty-eight percent of Etsy buyers surveyed said they find unique items that can't be found anywhere else. The navigation on the website is intuitive for buyers and finding items of interest is easy via a powerful search tool or specific categories.
It's easy for entrepreneurs to get started. Once they sign on, building an online store only takes a few minutes. Once the store is set up, the seller's items can be added and the store is up and running. Store owners can edit listings, respond to potential buyers, and have access to payments and shipping services from their mobile phone or laptop.
Sellers are backed by a brand that is focused on making them successful. The company provides an online seller "handbook," which has numerous articles on everything from photographing your merchandise, shipping tips, and even productivity strategies. Etsy's support staff is available via chat, phone, or email, and help from peers can be found on the seller community forums. Recently, the company has taken extra steps to let sellers know it's got their backs.
Management is going the extra mile
Over 90% of store owners are one-person businesses working out of their homes, so as social-distancing norms took over, they were able to continue working with very little impact on their operation. To support them, senior leadership began working on a marketing campaign focusing on the unique strengths of the brand to help drive traffic to its website. CEO Josh Silverman explained the focus of this campaign in the most recent earnings call:
First, Etsy sellers are open for business. Second, Etsy is there with everyday essentials that you need. And third, when shopping on Etsy, you are supporting small businesses. ... Our message to our sellers has been singular, which is we have your back.
The company is putting $11 million to $13 million to work in the second quarter, supporting sellers with this brand marketing campaign, waving off-site ad fees, deferring seller's bills, increasing member support, and providing advertising credits for categories that were hit hardest, like wedding and party supplies.
The takeaway for investors
CFO Rachel Glaser explained in a recent interview that sellers are "the lifeblood of Etsy." Since the company's success and growth are highly dependent on its artisans connecting with buyers to sell their handcrafted goods, it's heartening to see management walk the walk and not just talk the talk.
I recently purchased shares of Etsy in part because of management's commitment to its community of sellers. This niche marketplace will continue to attract new merchants because of the value it brings to their businesses. Investors who are interested in playing the e-commerce trend would do well to consider this niche player that's fulfilling its mission to "keep commerce human."